The C Corp. has a taxable gain of $1,150,000 (sales proceeds of $1,250,000 less tax basis of $100,000)

The Corp has a tax liability of $241,500 (21% of taxable gain).

The Corp has slightly over a $1 million in its bank account that the shareholder wishes to invest in the stock market. The Corp distributes $1 million to the shareholder.

The shareholder has received a taxable dividend distribution from the C Corp. The owner reports the $1,000,000 of dividend income and let’s assume that s/he files as married filing jointly. This income, subject to tax at the capital gains rate (20%) as well as being subject to the net investment income tax of 3.8%, would result in an additional tax liability of $238,000.

When is a Worthless Stock Worthless

Writing Off Worthless Stock Investments

Nobody likes to see his/her stock investment decline in value. It is even worse when the hopefully next Apple or Google stock declares bankruptcy. Is there some solace in that the stock investment can be written off as worthless for tax reporting purposes?

While taxpayers can write off as a deductible tax loss a wholly worthless security held by them, they cannot claim a loss when the stock becomes partially worthless. The challenge is to determine the year in which the stock becomes wholly worthless. The loss can be claimed Read more…

PA Publishes Sch. UE Tips for Taxpayers

PA Conducts Systemic Reviews of PA Sch. UE Expenses & Deductions

The PA Dept. of Revenue (DOR) has taken an aggressive approach against taxpayers who claim unreimbursed employee expense. Prove it or lose it. First the expenses must not be reimbursable. Second, the expenses must be actual, reasonable, necessary, ordinary, and directly related to the employee’s job.

It is not uncommon for the DOR to contact taxpayers to request an explanation or supporting information for any amounts reported on Sch. UE. Since taxpayers who claim such deductions should already have Read more…

Gig Economy Continues to Grow

Tax Trap for the Unwary

For purposes of this posting, let’s define the gig economy as workers who are primarily freelancers or independent contractors who have chosen to work for themselves for a variety of reasons, which could include the flexibility to work when and where the person desires, work only on projects of interest, or for work-life balances.

The National Bureau of Economic Research reported that 95% of employment growth in the U.S. between 1995 and 2015 was in the gig economy. A study by McKinsey Global Institute found that between 20% and 30% of workers are engaged in some type of independent contractor work. Intuit, the software company that offers QuickBooks software for business owners, estimates that the number of on-demand workers will more than double by the year 2020. The study also showed that 79% of existing on-demand providers are part-time workers and that this market will grow by 18.5% a year over the next five years.

Since the majority of self-employed individuals operate as a Sch. C business, they need to realize that there are some very significant differences between a self-employed business worker and an employee working for an employer. Self-employment means that the worker is responsible Read more…

PA Publishes Sch C Tips for Self-Employed Persons

PA Conducts Systemic Reviews of PA Sch. C Expenses & Deductions

Since 2015, the PA Dept. of Revenue (DOR) has taken an aggressive approach against taxpayers who file PA Sch. C. Allowable expenses must be actual, reasonable, necessary, ordinary, and directly related to the production and marketing of the taxpayer’s products, goods and services. The DOR reserves the right to request additional information with the expectation that the taxpayer can expeditiously substantiate the information that they previously reported on their return.

The DOR will accept various forms of documentation to support the claimed deductions, including Read more…

Yes, Place a Lien on Your Children’s Property

This May Be An Effective Tax Planning Tool

We represent taxpayers who have tax problems. They often owe the IRS thousands of dollars. They may have lost their job, had a serious medical issue, or had suffered some other financial hardship which prevented them from paying their taxes. As is often the case in such situations, they may have borrowed from parents, children, and friends to make ends meet.

Eventually the IRS comes knocking on their door (literally and figuratively) and demands payment of past taxes due, interest and penalties. The interest and penalties often increase the amount owed to the IRS by 50% of the taxes due. One option open to the IRS is to place a lien on the properties held by the taxpayer. When those properties are sold (or seized by the IRS) to satisfy the tax debt, those loans from friends and family members will often not be repaid. Your friendly creditors are the losers and the IRS is the winner.

When monies are lent between friends and family, it is often consummated with an oral promise and a handshake. There is the lack of formality.

Did you know that there is a legal way to ensure that family and friends get to the front of the line (ahead of the IRS) when property is sold?

When property with liens on it is disposed, generally the oldest liens are satisfied first. This is why the mortgage company is protected because its lien is attached to the mortgaged property when it is purchased. The mortgage company could care less who files liens after it does because it is first in line.

Is That The IRS Ringing Your Doorbell?

I recently attended a webinar and an IRS agent warned the audience of a growing popular scam. A supposedly IRS agent shows up at your residence (or place of work) and informs you that the IRS visit is to collect past taxes due. Failure to immediately remit payment is cause for arrest.

Self-Prepared Tax Returns

What Makes the Most Sense to You?

We were curious how much the average American household spends on income taxes. Looking at data released in August by the Bureau of Labor Statistics as reported by CNSNews.com, Americans on average spent more on taxes in 2016 than they did on food and clothing combined. It was also reported that in three years, from 2013 to 2016, the average tax bill for Americans increased 41.13%. The only expense category that exceeded the payment of income taxes was the cost of housing, which included the cost of the housing, property taxes, utilities, public services, household operations and supplies, and furnishings. It is quite apparent that income taxes are a major household expense.

Per the IRS, 51.763 million taxpayers self-prepared their returns for the 2016 tax year. The IRS statistics show that this number has been increasing annually.

The PA DOR believes that an employer seldom requires an employee to incur expenses on behalf of the employer that it is not willing to reimburse the employee. Accordingly, the requirements to claim unreimbursed employee expenses on PA Form UE-1 are very stringent. Learn how to Read more…